Forint Extends Weekly Gain on Hungary Economy Minister View

The forint extended a weekly advance against the euro as Hungary’s economy minister said the government needs a “favorable” exchange rate to reduce public debt.

The currency gained as much as 0.4 percent to the strongest level since July 29, before trading 0.1 percent higher at 309.76 per euro as of 5:14 p.m. in Budapest. The forint strengthened 0.9 percent this week, making it the best performer in the period among 14 emerging European currencies tracked by Bloomberg.

“We hope a favorable exchange rate will emerge at the end of the year,” Economy Minister Mihaly Varga told reporters in Budapest today. Hungary plans to lower its public debt to 76.9 percent of economic output by the end of 2014 from 77.3 percent last year. Forty-one percent of the nation’s liabilities in 2013 were denominated in foreign currency, government data show.

“The government only has indirect tools to influence the forint exchange rate and the economy minister has been known to communicate in a way that pleases investors,” Pal Saaghy, a currencies trader at Equilor Befektetesi Zrt. brokerage in Budapest, said by phone. There is a chance the forint’s appreciation will help the government meet its debt target like last year, he said.

The forint has weakened 4.1 percent in 2014, the poorest showing among its peers after the Argentine peso and the Russian ruble. The National Bank of Hungary ended a two-year rate-cut cycle in July at a record-low 2.1 percent, pledging to keep the level unchanged until as late as the end of 2015.

‘Stars Align’

The currency may appreciate to between 300 and 310 versus the euro at the end of the quarter, according to Equilor. It will probably break through 300 “if all the stars align” and the external environment is supportive, Saaghy said.

Market options signal a 44 percent probability the currency will be in the 300 to 310 per euro range by 2015, according to data compiled by Bloomberg. There is a 12 percent chance the level will strengthen beyond 300, the data show.

There’s little the government or the central bank can do to affect the forint enough to change the debt level, according to Nomura International Plc, the currency’s most accurate forecaster in the four quarters ending September.

“The announcement is more about capping downside risks for the forint to prevent further deterioration in the debt level,” London-based economist Peter Attard Montalto said by e-mail. The forint will end the year at 315 per euro, he predicted, matching the median estimate in a Bloomberg survey of 36 economists.

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